Explain the company that has least likely to experience problems in paying its current liabilities

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Chapter 13, Problem 8MCQ

To determine

Explain the company that has least likely to experience problems in paying its current liabilities

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Use the financial ratios of company A and company B to answer the questions below. Company A Company B Yr t+1 Year t Yr t+1 Year t Current ratio 0.55 0.59 0.56 0.55 Accounts receivable turnover 6.22 6.25 5.06 4.87 Debt to total assets 40.5% 40% 67.8% 65.9% Times interest earned 8.80 30.6 5.97 6.33 Free cash flows (in millions) ($3,819) $3,173 $168 $550 Return on stockholders’equity 7.7% 7.7% 26.6% 23.3% Return on assets 4.3% 4.3% 8.9% 7.9% Profit margin…

For each ratio listed, identify whether the change in ratio value from the prior year to the current year is favorable or unfavorable.

Methodology:• Based on the above information the consulting group will conduct ratio analysis for the following ratios:o Current ratio o Receivable’s turnover o Times’s interest earned o Profit margin o Days in inventory o Return on assets o Cash current debt coverage ratio • As a next step the group will compare the ratios calculated above with industry benchmarks. The benchmarks are indicated within brackets besides each ratio.o Current ratio (3 to 1) o Receivable’s turnover (13 times) o Times’s interest earned (9 times) o Profit margin (12%) o Days in inventory (50 days) o Return on assets (12%) o Cash current debt coverage ratio (2 times